(Photo: iStock)
(Photo: iStock)

How much tax do you need to pay for your equity investments?

  • All portfolios should be diversified between equity and debt so that the overall risk is controlled
  • An investor must take a careful look at the suitability of an investment in terms of taxes too

Among different types of assets, be they financial or physical, equity investments have given the highest returns over the long term. This is the reason why equity assets form a large part of most investors’ portfolios. While it is a fact that equity investments are risky, over long periods of investing, the effects of risk get removed.

There are many types of equity related products available in the market, but they aren’t all the same. They differ not only in terms of features, but also purpose and exposure to risk. For instance, mutual funds are an investment vehicle and do not provide insurance, but unit-linked insurance plans have both investment and insurance components. Apart from this, the tax rules that apply to these products also differ. For example, capital gains tax is based on the period of holding. So for stocks and equity-oriented mutual funds, long term is defined as more than 1 year, but for Ulips this parameter doesn’t apply.

Taxes reduce the overall returns that you can get from a product. Add to that the fact that different equity assets attract different tax rules, an investor must take a careful look at the suitability of an investment in terms of taxes too. Here's a look at what the various taxes are.

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